Cannabis now has its highest election-year profile ever.
Both presidential candidates have highlighted their favorable positions on cannabis reform, obviously because voters in all the key swing states favor reform. Cannabis reform appears on the ballot in referenda in several states – most notably Florida.
Its importance as an election-year issue underscores the growing cultural momentum pushing broader acceptance of cannabis in the country. This is a major change wave. Putting money in front of major change waves is typically a good investing tactic.
At the same time, cannabis stocks remain deeply out of favor. On the bright side, they appear to be building a base at current levels. This suggests, but does not guarantee, limited downside from here.
Patience can be rare among investors, but it is normally rewarded – eventually. I believe that will be the case with cannabis stocks, one reason they are a significant part of my personal portfolio.
Below, I offer a roundup of cannabis in the November elections, developments around the country that confirm the cultural momentum towards broader cannabis acceptance, and portfolio company news.
What to Do Now
The best time to buy stocks is when they are widely hated, but plausible catalysts lie on the horizon. That is clearly the case with cannabis stocks now. But this is also the hardest time to buy stocks. That resistance may also be a signal to buy. As a general rule, some of your best stock purchase decisions will be the ones that are the hardest to make.
Consider taking both trading positions and multiyear positions in portfolio names now, or averaging down. I am personally averaging down in the current weakness.
Portfolio names are: Ayr Wellness (AYRWF), Cresco Labs (CRLBF), Curaleaf (CURLF), Cronos (CRON), AdvisorShares Pure U.S. Cannabis (MSOS), AdvisorShares MSOS 2X Daily (MSOX), ETFMG Alternative Harvest (MJ), Green Thumb (GTBIF), Organigram (OGI), Tilray Brands (TLRY), Trulieve (TCNNF) and Verano (VRNOF). For simplicity, consider getting exposure via MSOS or the leveraged version, MSOX.
Cannabis in the Elections
* Vice President Kamala Harris has publicly confirmed that she favors cannabis legalization. “People should not be going to jail for smoking weed,” she said in an interview on the podcast “All the Smoke.” “We know historically what that has meant and who has gone to jail,” she said, a reference to the relatively high per capita arrest rate among minorities. About 200,000 people were arrested for cannabis in 2023, mostly for possession, says the FBI. Arrests of African Americans came in at 29%. They make up 13.6% of the population.
“I think we have come to a point where we have to understand that we need to legalize it and stop criminalizing this behavior,” said Harris. The comments were her first campaign reaffirmation of a view on cannabis legalization which she has had for years. “This is not a new position for me. I have felt for a long time we need to legalize it.”
Her cannabis policy reiteration landed as the presidential candidates ramp up their battle for swing state voters. Several polls show that a majority of voters in key swing states support cannabis reforms like legalization of recreational use.
Presidential candidate Donald Trump backs cannabis rescheduling which would boost cannabis company cash flow. He supports cannabis banking reform that would allow banks to serve cannabis companies. And he backs a Florida referendum that would legalize recreational use. So at least implicitly, he supports decriminalization at the federal level, if not legalization.
Highlighting the importance of cannabis in the campaign, Republican vice-presidential candidate JD Vance’s opposition to cannabis legalization was one of his “notable vulnerabilities,” according to campaign vetting documents published by Ken Klippenstein, an independent journalist.
Earlier this year, the Department of Health and Humans Services (HHS) recommended moving cannabis to Schedule III from Schedule I, under the Controlled Substances Act (CSA). The change would neutralize an IRS provision that blocks cannabis companies from deducting operating expenses. Thus, it would substantially increase their cash flow. The Drug Enforcement Administration (DEA) has scheduled a hearing on the matter for December 2. There’s no way to predict at the moment how long that hearing will last, or when a final DEA and Department of Justice rescheduling decision might land.
* The lawsuits are flying in Florida over increasingly high-profile campaigns to try to influence voters on a referendum that would legalize recreational-use cannabis in one of the country’s largest states. Approval of the referendum would be a significant catalyst for cannabis stocks.
Trulieve has sued the Republican Party of Florida and two media outlets to try to stop what it says are false and misleading advertisements opposing the referendum. The suit says the GOP, Sun Broadcasting, and Fort Myers Broadcasting are spreading “intentionally deceptive” claims about the referendum, called Amendment 3.
The lawsuit challenges mailings and TV ads that accuse Trulieve of backing Amendment 3 as a “power grab” to eliminate competition and enshrine a monopoly position in the state constitution. Trulieve says the statements are “demonstrably false,” a conclusion supported by the facts. Trulieve cites the plethora of competing cannabis companies and stores in the state. “No single company accounts for more than half of Florida’s cannabis market,” the complaint states. Trulieve handles 30% to 38% of the state’s cannabis sales depending on the product format, says Florida’s Office of Medical Marijuana Use.
Trulieve also says Amendment 3 would increase competition by allowing the state to issue more licenses to produce and sell cannabis. The lawsuit was filed in Gadsden County Circuit Court.
State Republican Chairman Evan Power responded that the “proponents of Amendment 3 are trying to take down these ads that they know are truthful and are working. They are using lawfare to try to silence us, but we will not be deterred. If this huge, powerful corporation can’t handle it, then they should go sit at the little kid’s table.”
Presidential candidate Donald Trump supports Amendment 3, while Florida Gov. Ron DeSantis (R) opposes it.
Trulieve has contributed the lion’s share of the $100 million budget of Smart & Safe Florida, a political action committee (PAC) supporting Amendment 3. Two PACs opposing the referendum, called Florida Freedom Fund and Keep Florida Clean, have raised less than $20 million.
Meanwhile, a Florida Democratic senator has sued the state for using taxpayer funds to pay for an ad he contends is unconstitutional because it attempts to influence voters on Amendment 3. Sen. Jason Pizzo (D) is seeking an injunction against a Florida Department of Transportation ad that implies that legalization of rec-use cannabis would increase the number of car crashes associated with driving under the influence of the drug and increase car insurance costs. Pizzo says the ad represents the use of tax dollars for “political messaging,” which is prohibited.
The Florida vote outcome will have ramifications beyond the state, says one cannabis sector expert. “When Florida acts, other conservative states listen,” says Hirsh Jain, who is on the board of the Los Angeles branch of NORML. “If legalization does pass in Florida, the decision would be an incredibly important concession for American conservatism.”
To pass, Amendment 3 needs at least 60% of the vote. Polls continue to suggest the vote will be close.
Betting sites like Polymarket confirm the vote will be close. Cabot Cannabis Investor portfolio stocks that would benefit the most from approval are: Trulieve, Ayr Wellness, Cresco, Curaleaf and Verano, because of their large and growing presence in the Sunshine State. The ETFs MSOS and MSOX would also get a boost.
* Voters in five key battleground districts in Pennsylvania want the state to legalize recreational-use cannabis, according to a recent poll. It found that 60%-70% of voters in the five swing districts around Philadelphia and elsewhere favor legalization. The findings are relevant to cannabis investors, since Pennsylvania is one of the larger states that appear poised to legalize rec-use sales. Pennsylvania is surrounded by states that have legalized cannabis, so it is losing a lot of tax revenue to those states.
Reasons for favoring legalization included economic growth, jobs, tax revenue, and the promotion of public health by giving consumers access to regulated products. The surveys were done in Beaver, Cambria, Luzerne, Lackawanna, Bucks and Montgomery counties. The survey was conducted by Change Research for a cannabis reform advocacy group called Responsible PA.
Pennsylvania might see $2.8 billion in rec-use cannabis sales in the first year of legalization, net $720 million in tax revenue, and gain 45,000 jobs, according to one study funded by cannabis activists.
* The battle over broadening Arkansas’s medical use cannabis program continues. The cannabis legalization group Arkansans for Patient Access (APA) has filed a lawsuit challenging the state’s determination that its medical cannabis initiative does not have enough signatures to get on the ballot.
Secretary of State John Thurston (R) recently ruled that only 88,040 of the 150,000 submitted signatures are valid, short of the required 90,704. The APA suit filed in the state supreme court asks for a hearing on the matter before election day. The referendum will be put to voters because ballots are already printed. The dispute comes down to whether the results will matter if voters approve the referendum.
If approved, the initiative would allow healthcare professionals to recommend cannabis for more medical conditions and allow patients to grow their own supply. The initiative would also broaden the group of healthcare professionals who can recommend cannabis to pharmacists, nurse practitioners, and physician’s assistants. A majority of voters in the state approve of the changes, according to a survey. The state legalized medical-use cannabis sales in 2019.
* Only 45% of voters back a North Dakota cannabis recreational-use legalization referendum. The survey conducted by WPA Intelligence found that 40% of voters oppose the change and 15% are undecided. The state already allows medical use.
Cannabis News from Around the World
Part of my core thesis for being bullish on cannabis stocks is that there continues to be tremendous cultural momentum toward cannabis reform around the world. I’m convinced institutional investors will not ignore cannabis stocks forever.
We see evidence of this powerful cultural momentum in the changes in laws to legalize cannabis, big tobacco investments in the space, robust cannabis sales growth in states that legalize, increased cultural acceptance in the form of relaxed drug testing standards in sports leagues and the workplace, and poll results that show a growing majority of people support legalization regardless of age and party affiliation.
These trends tell us cannabis stocks are a strong contrarian buy that will turn very profitable for patient investors with a medium-term horizon. The sector is so volatile, it is easy to get shaken out of names by heightened emotional reaction to drawdowns. So, it is important to catalogue evidence of this cultural momentum. That is the purpose of this section of Cabot Cannabis Investor.
* In a sign that cannabis is increasingly more accepted in popular culture, cannabis cafes are now legal in California. The cafes will be allowed to sell food and non-alcoholic drinks and host live events. California Gov. Gavin Newsom (D) recently signed a bill that allows the cafes, after rejecting similar proposals in the past because of smoke-free workplace protections. The new bill requires cafes to separate cannabis consumption lounges from areas where workers prepare food. It also says employers have to pay for masks if workers opt to use them.
“Lots of people want to enjoy legal cannabis in the company of others,” said the bill’s sponsor. “And many people want to do that while sipping coffee, eating a scone, or listening to music.” The bill got celebrity support from Woody Harrelson who owns a cannabis lounge in West Hollywood called The Woods, and Whoopi Goldberg.
* Cannabis legalization continues to advance in the South. Kentucky is gearing up to launch medical-use cannabis sales. The state recently licensed a cannabis testing lab called KCA Labs. On October 28 it will hold a lotto to issue licenses for cannabis cultivators and processors. A licensing lotto for stores will likely happen in November.
* Cannabis continues to gain favor in the Midwest. The Illinois cannabis market saw “explosive growth” in the past year, according to a new state report. The latest state fiscal year ending July 1 posted the most store growth ever, as 82 retailers opened their doors, says the Cannabis Regulation Oversight Office. Retailers sold more than $2 billion worth of product during the year. Ohio recreational-use cannabis sales hit $76.2 million by September 21. Recreational marijuana sales started in Ohio on August 6.
* Maryland took in $22.3 million in tax revenue from recreational-use cannabis sales in the second quarter, a 52% sequential increase.
* Insured bank deposits would increase by $1.5 billion and credit unions would see $125 million more in customer accounts if cannabis banking reform were approved, says the Congressional Budget Office (CBO). Deposits would increase by $2.9 billion and $475 million respectively by 2034.
The Senate Banking Committee approved the Secure and Fair Enforcement Regulation (SAFER) Banking Act in September 2023, but it has gone nowhere since. The bill would make it legal for banks to serve cannabis companies. The estimated increases in deposit levels help explain why the American Bankers Association supports SAFER banking. Currently, retail locations have to work in cash only, which raises the risk of robbery and employee injury. Both Kamala Harris and former President Donald Trump support cannabis banking reform.
Medical News
* A Pennsylvania cannabis board has recommended that nurse practitioners and podiatrists should be able to recommend medical cannabis use. Currently, only medical doctors can do this. The state’s Medical Marijuana Advisory Board recommendation has to be approved by Pennsylvania’s health secretary Debra Bogen. The changes would not need approval from lawmakers.
* Cannabis legalization seems to reduce the use of benzodiazepines like Valium and Xanax. Medical cannabis legalization was associated with a 12.4% decline in benzodiazepine prescription fills, while rec-use legalization was associated with a 15.2% decline, according to a study published in the journal JAMA Network Open.
Benzodiazepines, which are used to treat anxiety, are risky because of associated tolerance and dependence. However, the study also found slight increases in prescriptions for antidepressants and antipsychotic drugs after cannabis legalization. The research was done by the Georgia Institute of Technology and the University of Georgia. The study is called “Cannabis Laws and Utilization of Medications for the Treatment of Mental Health Disorders.”
* Doctors who treat chronic pain and patients who suffer from it support federal legalization of medical-use cannabis and having insurance companies pick up the tab. That’s according to a government-funded study published by the American Medical Association (AMA). The research published in JAMA Network Open found that 71% of chronic pain patients and 59% of doctors support federal legalization of medical-use cannabis. And 64% of patients and 51% of doctors said insurance companies should cover medical cannabis. About 70% of patients and physicians said medical schools should require training on the use of cannabis to treat pain. The study was done by the Rutgers Institute for Health, Health Care Policy and Aging Research.
Legal Updates
* An Arizona court has ruled the state cannot suspend a driver’s license simply because a driver has THC in their bloodstream. They also have to be impaired while behind the wheel. The ruling is an affirmation of Arizona law that bars the state from punishing drivers who have legally used marijuana products but are not impaired while driving. The issue arises because THC metabolites can stay in the blood for weeks after consumption.
* Pittsburgh has banned employers from discriminating against registered medical cannabis patients. The new rule prevents employers from testing workers who are medical cannabis patients for THC as a condition of employment or during employment. Employers are not allowed to “discriminate in hiring or employment against any employee or prospective employee because of the individual’s lawful status as a medical marijuana patient,” says the rule.
It carves out exemptions for transportation department employees and anyone who must carry firearms as part of their job. Employers may still prohibit the use of medical cannabis on the job. Medical cannabis patients can still be tested if there’s reasonable suspicion of consumption while working.
Cannabis in Canada
* Canadian cannabis sales recently hit a monthly high for the year at $322 million in July. That was up 1.6% compared to June but down 3.9% compared to the same month a year ago. Annual sales are down 0.8% so far this year, as the Canadian market continues to mature. Alberta and Quebec saw strong growth while Ontario and British Columbia posted big declines.
Cannabis in Europe
* Legalized cannabis continues to advance in Europe. Germany approved another 14 cannabis social clubs in September, taking the total to 303 as of the end of that month. Germany has stopped short of full legalization or rec-use sales through stores. But it took cannabis off its narcotics list earlier this year which makes it easier for doctors to recommend use, and it allows distribution through the social clubs.
Meanwhile, Ukraine recently approved a list of health conditions that will qualify patients for medical cannabis use. The Ministry of Health’s list of about 20 qualifying conditions includes all the normal indications, from multiple sclerosis and neuropathy to Parkinson’s disease, epilepsy, and weight loss associated with eating disorders.
Legalizing recreational-use cannabis in the U.K. could bring in as much as £9.5 billion ($12.5 billion) a year in tax revenue, according to a cannabis reform group in the country called CLEAR. The country has approved medical-use sales.
* Fun fact: The National Institute on Drug Abuse (NIDA) is looking for contractors to roll cannabis cigarettes for use in research.
Portfolio Company News
Curaleaf (CURLF)
Curaleaf has opened a store in Port St. Lucie, Florida. The opening takes Curaleaf’s Florida store count to 65, out of 151 stores in the U.S. The opening comes ahead of a key Florida vote on a referendum called Amendment 3, which would legalize recreational-use sales in the state. Polls show the vote will be close. The referendum needs 60% of votes to pass.
Trulieve (TCNNF)
Trulieve has opened a new store in Hallandale Beach, Florida. The store opening solidifies Trulieve’s position as the biggest cannabis company in the state, and the one that will benefit the most if voters approve Amendment 3 on election day. The referendum would legalize rec-use sales.
Trulieve has also signed a deal to distribute Black Buddha’s BLYSS and DREAM lines of “premium” medical cannabis products in Arizona and Pennsylvania. Black Buddha says its products create a blissful experience because of their terpene profile. Black Buddha Cannabis was founded by Roz McCarthy, CEO of Soaring High Industries and Minorities for Medical Marijuana, after a traumatic brain injury transformed her life and inspired her to experiment with the therapeutic benefits of medical cannabis.
Tilray Brands (TLRY)
Tilray is partnering with Charlotte’s Web (CWBHF) to launch Charlotte’s Web CBD Rest Gummies and CBD Life Gummies in Canada. The gummies contain 25mg of hemp-based CBD.
Cannabis Plus Insider Portfolio News
AFC Gamma (AFCG)
In our Cannabis Plus Insider portfolio, AFC Gamma recently granted a $41 million senior secured credit facility to Story of Maryland, a vertically integrated cannabis company in Maryland. Story will use the proceeds to refinance debt and provide working capital.
By closing the deal, AFC Gamma surpassed its goal of originating $100 million in loans to cannabis companies this year. This is AFC Gamma’s second transaction with Story Cannabis. Cannabis sales growth in Maryland has been robust since the state legalized recreational-use sales in July last year. AFC Gamma pays a 13.6% dividend yield.
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